Why the depreciation shows different number

[huangnetian]

This is my first year that I converted primary home to rental.

The review page shows $5826, but the depreciation is $11402.

It seems the review page do the adjustment with the rental income. It adjusts deprecation + expenses + vehicle expenses = rental income. so, my first-year rental does not allow loss. why?

[DianeW777]

It depends. There are two factors that determine allowable loss.

1. First is 'active participation' - you must be sure to answer this question correctly with a 'Yes' in the rental activity if you make all the decisions about the rental, even if you have a property manager.
2. Second is income - Maximum special allowance. The maximum special allowance is: 
   • • $25,000 for single individuals and married individuals filing a joint return for the tax year, 
   • • $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and 
   • • $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. 
     • If your MAGI is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance.

The depreciation for the first year of conversion does start in July and is calculated correctly ($11,402), using the 27.5 year recovery period.

If your income below the is over the threshold above for your filing status your loss will be suspended and carried forward.

• IRS Publication 527

Use the Search (upper right) > type rentals > click the Jump to... link > Review Property Profile

• Active participation 

[huangnetian]

My income is above the thresh, the loss will be carried over to next year. should the net income show negative number instead of 0. I have another rental property in Florida, it shows negative net income. Why is it different?

[AbrahamT]

Ok, so it seems like this just showing what your income/ loss is from the two properties but it does not necessarily mean that you can use the Florida loss against you nonpassive activity income. Check your 2 Schedule E's from the two properties and compare it to the 1040 Pg. 1 Line 8 coming from Sch 1 Line 5 to see what amount of the loss is being carried forward. Remember, the rule of  disallowing the  maximum allowance rules only apply to an individual who is considered an active participant in passive rental real estate activity which you described yourself as in the property relating to Dublin. Your status in Florida may be entirely different thus allowing for the loss deduction. See HERE  under the category Special Allowance for Rental Real Estate Activities for more detail on this subject.

All the best! 

[huangnetian]

Thanks for your answer. My question is 

My Florida property shows net income: -17998 as the loss, that will be carried over to next year.

By my Dublin,CA property shows net income: 0 as the loss. Actually it is not, because the depreciation is $11402, but the main page shows $5826. The loss of this property should be $11402 - $ 5826 = $5576. So, $5567 should be carried over to next year as the loss.

[huangnetian]

It seems the loss of my Dublin Property deduct my W2 income. My W2 income is 200K+. It is not qualified to deduct the property loss to my regular income. The loss should be carried over to next. Anywhere that I set is wrong, or it is a bug of this software.

[AbrahamT]

Check your entry in the Sch E input and make sure you categorized yourself as an active participant in the real estate activity.

Remember, only in such circumstances, would you be disallowed to take this loss.

Use the Search (upper right) > type rentals > click the Jump to... link > Review Property Profile

• Active participation

Also the activity in the rental would have to be passive activity.

In your case , you would not be allowed to be a real estate professional because you are materially participating.

There are two kinds of passive activities. Trade or business activities in which you don't materially participate during the year. Rental activities, even if you do materially participate in them, like in your case, unless you're a real estate professional, then it would be nonpassive. Because to qualify for the disallowance you would have to be materially participating, you would not be allowed to be a real estate professional

Business Income and Expenses

Rental Properties and Royalties

then hit next

and again next

You are considered to be a real estate professional (i.e., in a real property trade or business) if:

1) more than one-half of the personal services you provided during the year were performed in a real property trade or business in which you materially participated; AND

2) the number of hours in which you materially participated in this real property trade or business was more than 750 hours; AND

3) you must materially participate in each rental real estate activity unless you filed an election to group all rental real estate activities as one (and materially participate in that activity).

A "real property trade or business" means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, or rental operation, management, leasing, or brokerage trade or business.

Personal services performed as an employee are not treated as being performed in a real property trade or business unless you are a more than 5% owner of the trade or business.

For joint return purposes, the eligibility requirements are considered met if either you or your spouse separately satisfy the requirements.

[EDIT 2/15/2023 11:00 AM PST]

[huangnetian]

I understand that I am not a professional real estate agent. So, my passive income ca

n not deduct my w2 income.

But, it does deduce my w2 income in turbox tax. I do not know why?

I found some issues.

Since I converted rental from primary home.

So, I put 169 days for rental, and 158 days for personal use. But it deducts the loss to my we income. It should not deduct my w2 income. it will carry over the loss the next year. But it deducts mt w2 income, so it does not carry over the loss to next year.

When I put 0 day for personal use, it does not deduct w2 income. It will carry over the loss to next year, which is correct. Should I put 0 here? or 158 days in personal use. I think whether I put 158 days or 0 day here, it should not deduct my w2 income. Why is it different here?

[huangnetian]

I missed this screenshot above.

[huangnetian]